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XYZ Inc is a lumber wholesaler located in the USA. It is crucial to choose a portfolio of suppliers in order to minimizes any risks

XYZ Inc is a lumber wholesaler located in the USA. It is crucial to choose a portfolio of suppliers in order to minimizes any risks of stock outs. Current market research has indicated 8 possible suppliers. The table below shows the relevant information on the available suppliers. For example, Supplier A can delivery at $49.50/unit (container) up to their capacity of 300 (300,000 units) per year. The supplier A is unionized, and it uses ships to deliver the merchandise. The deliveries from supplier A have an average of 15% damage upon delivery.

According to market research and last year's performance, XYZ requires 1,225,000 units of lumber for the upcoming year. In order to maintain the quality and minimize losses, the average damage per delivery should not exceed 19%. In addition, XYZ should procure at least 50% of its coking coal from unionized suppliers in order to avoid potential complaints. Finally, XYZ should make sure that the infrastructure is capable of handling its purchases. Currently, the port has granted a maximum throughput of 650,000 units per year, and capacity for delivering wood by trucks is limited to 720,000 units per year.

A

B

C

D

E

F

G

H

Price ($/unit)

49.50

50.00

61.00

63.50

66.50

71.00

72.50

80.00

Unionization

Yes

Yes

No

Yes

No

Yes

No

No

Truck/Ships

Ship

Truck

Ship

Truck

Truck

Truck

Ship

Ship

Damaged delivery (%)

15

16

18

20

21

22

23

25

Capacity (thousands/year)

300

600

510

655

575

680

450

490

Considering the information above, provide a solution that would answer the following questions:

  1. How much wood should XYZ purchase from each supplier in order to minimize the cost of supply and maintaining desired quality?
  2. What is total cost of supply?

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